50-30-20 Budget Rule – Easiest Way to Financial Freedom

Is the 50-30-20 Budget Rule the surefire way to financial stability?


What is the 50-30-20 Budget Rule?

Starting a budget with a 50-30-20 budget rule is a simplified way to take account of your money.  The numbers represent a percentage of your income and how it should be allocated to categorized expenses.  If you’re not an expert in budgeting, you might want to consider this method since there are only 3 types of spending categories you need to worry about.   

More importantly – for those on a tight schedule, the method doesn’t take a lot of time.  The 3 main categories are:




Needs – 50%

The number 50 represents how much you should place into important things like bills, food, and rent.  Simply put, you should devote 50% of your budget to necessities.  These can include some common expenses:

  • Mortgage Payments
  • Car Loan Payments
  • Groceries
  • Debt Payments
  • Utility Payments
  • Insurance
  • Child Care

By making sure that 50% of your income is directed towards the necessary spending, you have the flexibility to use the remaining money towards what you want and what you want to save. 

Obviously, you’d pay for any necessary items regardless.  And sometimes you could go above the 50% threshold, and this may be a warning signal that you’re living above your means, or it could tell you to look at your necessary expenses and see if you can cut back.  For example, your grocery expenses or utility bills are higher than the average household. 

Consider ways to cut back.  Even in necessary expenses, you can find wiggle room.

Necessities can be tricky.  Expenses like cable tv, alcohol, and dining out might appear to be a necessary part of our budget routine.  However, these items should not be categorized as a need. 

Wants – 30%

Of course, the easy part is spending money on what you want.  

If you feel like this allotment isn’t so great, 30% of your budget is still a large portion of your budget. This is about 1/3 of your money allocated to what you want.  It might be reasonable since it’s a big chunk of your spending–  yet you’re not overspending on entertainment, dining out, or stuff that you want to do for fun.

Think of this as your “fun” bucket.  You can keep a good portion for lifestyle and wants.

If you’re over the 30% mark, there are plenty of ways to stretch your dollar, especially for entertainment and dining.  

Remember, you want to get these expenses below 30%.  Saving websites like Groupon have plenty of discounts on restaurants and entertainment.  Sites like Slickdeals.net can show you some amazing discounts on items.  Look for bargains and you can find a way to lower your expenses in this category.

Some popular “Want” expenses you want to look at:

  • Movies
  • Concerts
  • Restaurants
  • Electronic Devices
  • Vacation
  • Trendy Clothes
  • Spas
  • Pet Grooming
  • Gym Membership

Savings – 20%

The final 20% is an important one.  Focusing on this part can reap large dividends in the long run.  By allocating your budget into Savings and Investments, you can help set aside money for retirement, emergencies, or special purchases like a house.

Set aside 20% into a bank account if you’re unsure yet of what to do.  Or consider a savings account if you intend to use the money in the very short term.  Be cautious. Bank accounts may provide low or no interest and might be just good for people wanting to park the cash for the immediate future.   This type of account can be great for a rainy day fund.

If you’re wishing to save for the long run, consider investments like mutual funds and stocks.  These investment instruments can compound exponentially for the long haul.  This type of investment is perfect for retirement or growing your assets.

There are plenty of companies that offer an array of investment products.  Look at companies such as Vanguard, Fidelity, or Charles Schwab.  They can provide tools and simple investment options to pick and choose the right funds or stocks.

You can also consider other vehicles like CDs, money markets, and short-term bonds.  Consider the short term investment funds where you’re saving money for the more immediate term.   Some of the investments have a maturity date, so make sure that you are aware that the monies will be locked until that date.

50-30-20 Budget Rule Infographic

50-30-20 Allocation Example

Say your budget is $4,000 after taxes every month.  Want to know how much you would need to allocate?

Consider the following:

$2,000 = 50% of total budget for Necessities

$1,200 = 30% of total budget for Wants

$800 = 20% of total budget for Savings

To some, these figures might be a bit out of reach.  The point of this is that you’d want to have a good portion of your expenditure directed to savings.  

Heck, $1,200 might not be enough for someone who tends to dine out frequently. But there are plenty of creative ways to lower that cost such as dining out at a place that doesn’t’ require a tip.

How to Track Your Budget

I have an article on the top budget tools which lists the most popular budget tools.  What’s great about it is that most of them are free.   No subscription and no commitments.

With these budget tool sites, they will require you to provide access to your personal bank accounts and credit cards.  Of course, they’ll assure you that they don’t hold any of your passwords.  If you’re concerned about privacy, some sites even allow you to upload a file instead of asking for your bank account user name and password.

Some of the tracking tools do more than simply track your money.  For instance, Personal Capital will tell you how much your spending relative to the previous month.  It’ll even recommend if you’re on track for retirement or not.

Take the time to look at budget tools, especially the free ones.  They can make budgeting effortless and maybe even interesting.

How to Automate Your 50-30-20 Expenses

Want to make your budgeting almost effortless?  You can, in fact, automate your 50-30-20 budgeting through banks and financial institutions.

Here’s how.


Most payroll companies offer the ability to take a portion of your paycheck and move that to a financial institution.  It’s similar to your 401(k) contributions if you have one.  For instance, your payroll company may be able to split your check 80% to one bank account and 20% to an investment company.

Transfer Money From Your Bank to Other Institutions

If your payroll doesn’t offer the ability to split your paycheck, or if you’re inclined to automate from your bank, take a look at your bank’s options.  Most major institutions offer the ability to transfer money to another bank at no cost.   Scheduling monthly transfers from your major bank to a savings account may be as easy as plugging your banking routing number.  Take a look at your transfer options or contact the customer service representative.

Budget Spreadsheets

The 50-30-20 budget rule has lots of supporters online, and you’ll find plenty of spreadsheets with a simple Google search.

The spreadsheets allow you to easily categorize your spending and see if you’re on track.  Take the time to look at the spreadsheet frequently as expenses occur.  Having copies of every month may allow you to see progress. 

I don’t have a specific recommendation for a spreadsheet since there are so many.  Look for one that matches your plans.

Criticism of the 50-30-20

Critics of the 50-30-20 budget rule often cite the 30% of the budget – Wants.  For high-income earners, you’d want to save a lot more than 20% and that 30% for wants might be a bit high. 

Along the same lines, those from expensive areas might even say that 50% for needs might not cover high rents and expensive costs of living.  For someone living in an expensive neighborhood like San Francisco, the utilities and mortgage/rents can be extremely high so that it would be hard to stay under 50%.

Another notable criticism is how expense items get clearly categorized.  For example, where would you put cell phone or internet coverage?  Is it a necessity or something that we can do without?

Final Thoughts

Starting a budget with the 50/30/20 budget rule isn’t for everyone.  For people who don’t have the time or don’t want the complexity, this budget might be perfect for you.   The budget allows for ease of tracking and simplicity of categorizing your spending.   

I would recommend if you’re starting out, take a look at this method.  You might be able to get started on your path to financial freedom or financial stability.